Oceans & Forests Blog

A Struggle for the Soul of the GCF

Posted Nov. 20, 2012 / Posted by: Karen Orenstein

Existential crises usually kick in mid-life, as one wakes and wonders: what is my purpose in life? Why am I here, and where am I going? Though still in its infancy, the Green Climate Fund, a new institution of the United Nations Framework Convention on Climate Change, is confronting such profound questions.

As board members of the Green Climate Fund roll up their sleeves to begin critical preparatory work ahead of their first meeting in 2013, they will have to very soon answer a key question to define the soul of the GCF: Is the primary purpose of this new institution to best serve the needs of peoples in developing countries, and their environment, as the world heads full throttle into a climate crisis? Or is its purpose to attract high levels of private finance, given the magnitude of the climate problem? To be sure, these goals are both important. And though they are not always mutually exclusive, they are also certainly not the same.

This fundamental question about the vision of the GCF has still to be thoroughly debated, let alone resolved. Yet the Board has already placed the private sector facility at the top of the agenda for its next meeting, and the facility is among the top two indicative priority issues in the fund’s work plan through 2013.

For those unfamiliar with what is meant by “private sector facility,” you are not alone. At this point, the only parameters to go by are a few sentences in the GCF’s governing instrument:

The Fund will have a private sector facility that enables it to directly and indirectly finance private sector mitigation and adaptation activities at the national, regional and international levels. The operation of the facility will be consistent with a country-driven approach. The facility will promote the participation of private sector actors in developing countries, in particular local actors, including small and medium-sized enterprises and local financial intermediaries. The facility will also support activities to enable private sector involvement in SIDS [small island developing states] and LDCs [least developed countries]. The Board will develop the necessary arrangements, including access modalities, to operationalize the facility.

What the private sector facility will be, in practice, is very much up for debate.

Adaptation -- an area rich in helping the most vulnerable but poor in attracting for-profit ventures -- would likely be seriously sidelined were attracting private finance the primary objective of the GCF. Without rigorous intention to prioritize adaptation, which already only receives a pittance, we would see an even greater neglect.

There may be more money to be made in mitigation, but low income countries are far less likely to have high mitigation potential (least developed countries have among the world’s lowest per capita greenhouse gas emissions) and economies of scale big enough to attract much private finance. Thus, a private finance-focused GCF would largely bypass the energy needs of low income countries.

Deciding how to channel tens of billions of dollars that will hopefully one day flow through the GCF is a process that needs to start with the question of what people in developing countries need most. The chair of the Least Developed Countries Group recently elaborated some of these needs in an open letter to U.S. President Obama. Priorities include:

… moving drinking water and irrigation wells away from coasts, where saltwater is intruding into aquifers; it includes developing drought-resistant crops and helping small farmers in fragile, semi-arid regions survive. We have to prepare roads and cities, villages and farms for floods, hurricanes and heat waves. We need to equip people with the weather prediction, early warning systems and emergency response that citizens of the developed countries take for granted.

To answer questions around what the business model for the GCF should be, and what role the private sector facility should play, the Board should start by asking how the GCF can serve the waste picker in Bangladesh, the slum dweller in Kenya, the farmer in Bolivia and the fisherfolk in the Caribbean.

The take-home lesson for the GCF is that the greater the use of financial intermediaries, the more intrinsically difficult it will be to ensure implementation of and compliance with environmental and social standards. Similarly, the financial sector’s desire for less disclosure, liability and accountability for the environmental and social outcomes of their transactions will pose a significant challenge for GCF efforts to promote sustainable development and climate effectiveness in the use of climate funds.